- I did not apply these rules in the past and I lost a lot of money.
I am starting to apply them now but it is still too early to say if they work. Caveat emptor.
- These are well-known rules, I didn’t invent anything.
- Don’t invest more than you can afford to lose
- Methodology is the key. Well, you still have to find the right method
- Buy low, sell high – which means selling when it seems that it could still go higher
- Don’t panic buy, don’t panic sell (easier said than done).
- Don’t sell at a loss – difficult rule to follow, because sometimes it is necessary – after a bubble if you bought high, for instance.
- When there is a pump in progress, place a buy order at either 80% or 120% of the price pre-pump – I did not decide yet.
- Beware of bull traps (a second) increase in value after a sudden drop (anatomy of a bubble). Detecting a bull trap requires looking at much more than six hours, or even a day, so use the various timescale of the charts.
- When selling, always take into consideration twice the transaction fee (you paid once to get in and you’ll pay a second time to get out), provided both prices are the same percentage, of course.
- Don’t trust the depth chart (graphical representation of the cumulative ask/buy orders and bid/sell order) they are completely manipulated. Most experienced traders will instant-buy or instant-sell at a price they already decided and will place fake order to give wrong signals to traders.
- Identify what can go very high and buy. Example of something that won’t go high: a stock with low volume (it may get volume later, so check back from time to time). Check history of the stock, not just the last six hours.
- Everytime it doubles, sell 10% or your remaing amount. After three doubling (and thus three selling), you paid back your investment; even if the price crumbles now, you would still make a profit. I call this the “10/200″ rule and credits go to rpietila and kmicic77
- Place trailing stop orders at 10%. If the exchange doesn’t accept trailing stop, move to another exchange.
Some more thoughts
- best option if trailing stop is not available: stop loss (a.k.a. seat belt)
- third best option (always available): take profit
Take profit is implemented in any crypto exchange that I know of. You say at wich price you will sell (for instance, I’ll sell my crypto I bought at 1000 once it will reach 1070).
Stop loss is like a seat belt for your money (if the price goes below 1010, sell). Would you drive a car without a seat belt? Well, on most crypto exchange, you are driving without a seat belt. That’s probably one of the reason why money go so high: no one wants to lose and the best way to ensure this is to have the price go higher. Still, this is not a sane attitude.
Finally, trailing stop is the best one. It will sell not at a fixed price, but at a percentage of the current price! It depends much less on the faith you have on the crypto so it is much less about luck. Of course, you have to choose the percentage carefully (swaphole’s owner considers that 10% is a bit too much) plus, there is a chance that the percentage brings the price lower than the one at which you bought (if the price goes down just after you bought). Kraken has a nice phrase for describing a trailing stop:
riding the trend until price falls by X%.
You buy at 1000. The price moves to 1100 then when you come back, it is down to 900
- No conditional order: you lost money
- Take profit at 107%: you earnt 70
- Stop loss at 1010: you earnt 10
- Trailing stop at 10%: you earnt 90
Of course, the price could spring back from 900 to 1200 and then you would get 200 with no conditional order. Much like when you bet at the Russian roulette and win. Does it still make Russian roulette worth it? I let you be the judge.
Plus, consider the stress. Do you want to be constantly thinking about the charts and have no life? There are three variables (or operands) in calculating the cost of something, and people rarely consider the three of them. By decreasing order of attention (not of importance), these are:
With no conditional order, either you are careless, or this money doesn’t matter for you or you’ll spend a lot of (emotional) energy. Personally, this is the third one. Now the added monetary value is not worth the extra energy I would spend. That’s why rpietila says the 10/50 is a sane method (and I’d say the use of a trailing stop is a sane method too).
- I know only
two one crypto exchanges with trailing stop: kraken.com (for major cryptos) and swaphole.com (for minor cryptos). Swaphole has all the mechanics working, but has not enabled it because of its presently low volume (5 BTC compared to Mintpal’s 6000 BTC)
- If everyone was using trailing stop, the market would be much less volatile. Thus, much less money to make. Speculation is a zero-sum game; in order for you to win, it requires someone else to lose. So, it is in your best interest to not have anyone know about trailing stop. So why do I post this? First because I am a compulsive teacher, even when it deserves me. Second because I’d like swaphole.com to have more volume – the best strategy is worth nothing if there is no one to buy your money.
- I’m still pondering one thing (ouf of the “will my strategy work” question, of course): should I place trailing stop orders on the money I plan to sell? Ideally, I would use a combined order (trailing stop or take profit, whichever comes first), but I don’t know any market which allows it.
- I do not know any exchange offering combined orders. Two that I’d like to see implemented are:
- Trailing stop or take profit, whichever comes first
- Buy order then sell order at +x%
Methodology is everything. Intuition is not your friend and emotion is clearly your enemy. I understand this whole article may sound complex. So please don’t hesitate to ask, I’ll be delighted to reword it to make it easier to understand.